Experiential / Reality-based Learning / May 10, 2016

The Opportunities and Challenges of Doing Business with India

Participants at the Robert H. Smith School of Business's 2016 Emerging Markets Forum agreed that India's rapid growth offered opportunities for both local and U.S. businesses, but they disagreed about whether the Indian government of Prime Minister Narendra Modi is moving quickly enough to cut red tape.  

"The business environment in India is just now beginning to justify all of the expectations that Ford had when it got involved in India 20 years ago," Steve Beigun, vice president of international governmental affairs at Ford, said in one panel session at the daylong gathering. That kind of bullish talk was typical. Ford builds 175,000 cars annually in India, Beigun noted, half for domestic consumption and half for export, and it employs 140,000 people directly or indirectly.

But on the negative side of the ledger, Beigen singled out a need for India to move away from protectionist policies: "India without a doubt has been a foot-dragger in global trade talks for a very long time."

This was the sixth annual Emerging Markets Forum, organized by the Smith School's Center for International Business Education and Research (CIBER), which is funded by a grant from the U.S. Department of Education. The goal each year is to bring together policy leaders, academics, industry leaders and students to discuss a topic relevant to international business.

The theme at this year's forum, held at the Ronald Reagan Building and International Trade Center, in Washington D.C. was "Doing Business with India: The Promise and the Perils," and the keynote was delivered by Arun K. Singh (video), India's ambassador to the United States. The executive director of CIBER at the Smith School is Kislaya Prasad, research professor of logistics, business, and public policy.

India's massive scale and solid economic growth makes it — despite poverty, poor infrastructure and daunting bureaucracy — an inescapable part of the strategies of many multinational businesses. Ambassador Singh pointed out that China's Foxconn had recently pledged $5 billion in investment in manufacturing projects, GM had announced $2 billion, Ford $1 billion, and Uber $1 billion.

Ambassador Singh argued that the government was moving rapidly to improve the business climate. The country ranks 130th, of 189 countries, on the World Bank's ease-of-doing-business scale, below the West Bank and above Egypt. To inspire faster change, India applies the World Bank's criteria to its own states and ranks them, in order to promote interstate competition, Singh explained. The government also recently raised caps on foreign investment in sectors including defense, railways, insurance, construction and medical devices. Twenty cities have begun to receive funding as part of a Smart Cities initiative, which will include substantial infrastructure upgrades.

In the question period, Ambassador Singh alluded to a few areas of disagreement with the United States — on intellectual-property rules that might curtail the manufacture of generic drugs, for instance. "What is the right balance between incentivizing innovation and providing affordable health care?" he asked. "I would hope the debate moves a little more in the direction of affordable health care."

Mukesh Aghi (video), president of the U.S.-India Business Council, echoed the notion that India was reforming quickly. In his presentation, he noted that 1,700 burdensome regulations had been stripped from India's law books in the past year alone. While acknowledging such advances, Karan Bhatia, vice president and senior counsel for global government affairs and policy at General Electric, said — in comments echoed by others — that a proposed shift from a patchwork of local taxes to a nationwide system called the Goods and Services Tax would greatly aid his company. "Among multinationals, there is a universal feeling that taxes are unpredictable, that the rule of law does not fully function in the tax area," Bhatia said.

In a lunchtime address, Jagdish Bhagwati (video), University Professor of Economics at Columbia, applauded India's turn in recent decades from a rhetoric of redistribution to a rhetoric of growth, and he suggested that the Modi government was largely on the right track in economic affairs. He offered the caveat, however, that the government was overemphasizing the importance of manufacturing — describing this as a "fetish." Under the slogan "Make in India," the country wants to bring the proportion of GDP provided by manufacturing from 15 percent to 25 percent.

Bhagwati also rebutted press critics who said that Prime Minister Modi was moving too slowly. More liberalization was clearly necessary, but when it comes to the timing of change, Bhagwati said: "I don't second-guess politicians."

That drew a rebuttal a few minutes later from Sandeep Kapur, professor of economics at Birkbeck College, London. Alluding to Bhagwati's frequent positive references to reforms undertaken in the early 1990s, Kapur said: "If we are still talking about reform that happened a quarter century ago, maybe we should be talking about how reform might be sped up."

Sadanand Dhume, a resident fellow at the American Enterprise Institute, offered further skepticism about the Modi government. He suggested that Modi was governing in an overly centralized way, pushing big projects through the bureaucracy but not fundamentally reforming it, and failing to work collaboratively with his cabinet members.  

On the other hand, Annaswamy Vaidheesh, vice president, South Asia, and managing director, India, for GlaxoSmithKline Pharmaceuticals, said that from his perspective the changes wrought by the prime minister's competitive-federalism approach  were "quite amazing."  "Today," he said, "you can expect someone from government to come and ask you, 'What can I do for you?' 'How can we improve what we're doing?'" — something unheard-of only a few years ago.

Shifting from the Indian economy to the American economy, Kapil Sharma, vice president for government and public affairs at Wipro Limited, a multinational company based in India, said that most Americans remained oblivious about the degree to which Indian companies contributed to U.S. GDP and well-being.  "Indian companies are investing in manufacturing, they're investing in technology, they're investing in data centers, they're investing in mines that other companies have abandoned," he said.

Yet Sharma, a member of the Smith School's board of advisors, lamented that thanks to the media, many Americans had in their minds a stereotype of Indian tech companies as "Indian women in saris with headsets."

Dave Ryan, executive vice president and Americas regional head for Tata Communications, which provides infrastructure for telecommunications service, made a similar point: "The idea that we are taking jobs away is just so far from the truth." And he said his company, too, faced branding challenges — partly because its competitors included such ubiquitous U.S. brands as AT&T.

But more and more Americans are learning about Tata. At the forum, Sunil Mithas (video), a Smith School professor of decision, operations, information technologies, discussed the metrics-driven strategies that helped the Tata Group grow from a $5.8 billion regional company in 1992 to a $110 billion global giant. Today it competes with the likes of G.E. and Siemens.

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About the University of Maryland's Robert H. Smith School of Business

The Robert H. Smith School of Business is an internationally recognized leader in management education and research. One of 12 colleges and schools at the University of Maryland, College Park, the Smith School offers undergraduate, full-time and flex MBA, executive MBA, online MBA, business master’s, PhD and executive education programs, as well as outreach services to the corporate community. The school offers its degree, custom and certification programs in learning locations in North America and Asia.

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